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Westpac: doubts and rumors surround proposed merger

3rd July 2008
By Petter Ingemarsson

The merger of Westpac and St.George has become less certain.

In the months following the announcement of the proposed Westpac/St.George merger, doubts regarding the deal have mounted, as market movements and customer sentiment have turned negative. Westpac is coming under increasing pressure to improve its offer, particularly as rumors of potential counter bids have emerged.

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On May 12, in a move that took the industry by surprise, two of Australia's top five banks announced that they were in merger discussions, with Westpac offering an all-share deal for its smaller rival St.George. However, in the weeks following the announcement, Westpac's share price slipped, and St.George's price rose, eroding the offered premium.

In a recent statement, St.George chief Paul Fegan pointed out that the bank was keeping its options open, given that its shares are actually trading above the terms of the original offer. This may signal an expectation of either a superior counteroffer or an improved offer from Westpac. Current rumors in financial circles have named National Australia Bank as a potential suitor for St.George, although the bank has refused to comment on this speculation. In addition, while Westpac has so far ruled out making a sweetened offer, there has also been recent speculation regarding the possibility of overseas companies tabling a bid.

The proposed merger has also been hampered by a lukewarm reception from bank customers. In a recent survey of over one thousand Australians, two in five believed that there would be no positive outcomes from a merger of the banks. Consumer watchdogs and the finance sector union are also opposed to the deal, as they believe that it will decrease competition and lead to branch closures.

The Australian competition authority, the ACCC, is currently reviewing the proposed merger, with a decision due by July 30. The ACCC has been careful not to indicate whether or not the deal will be given the go-ahead, but has stated that, whatever the outcome, it will not set a precedent for other potential mergers in the Australian financial sector. This is important, as industry observers expect the Westpac/St.George merger, if successful, to trigger further deals within the industry, as other banks will be obliged to try and achieve similar scale efficiencies.
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